Brokebank USA: Living Paycheck to Paycheck

Gillian Tett of the FT has an interesting article that seemingly contradicts all of the happy talk about how "America is back" with stock markets hitting all-time highs. There is no particular difficulty understanding stock market speculation and bubbles: with the Federal Reserve practically giving money away, those who still have access to credit have parked the proceeds in stocks. With the last two rounds of all-time highs coming right before the dot-com bubble burst and the subprime crisis, let's say its implications may not be welcome.

Outside of the casino economy, however, there appears to be a new way to measure the desperation of Americans living in and with the real economy. When people are strapped for cash--and American personal savings rates are once more headed to zero--it is only to be expected that business activity peaks during paydays. That is, quite a lot of these Brokebank Yanks Americans are living, as the saying goes, from paycheck to paycheck:

“Consumers are living pay check by pay check, and they tend to spend
accordingly. Then you have 50 million people on food stamps and that has
cycles too. So for our business it has become critical to understand
the cycle – when pay [and benefit] checks are arriving.” Sadly, it does not yet seem possible for outsiders (or journalists)
to crunch the numbers across the entire economy. Large companies are
very secretive about their big-data projects (this particular company,
which produces many of America’s best-loved snacks, would not let me
reveal its name). And though economists monitor macro trends in retail
spending, they have not traditionally analysed micro spending swings.
Nevertheless,
this story is not unique. Executives at Walmart, for example, have
recently noted the rising impact of the “pay check cycle”; Kroger,
another retailer, notes that the proportion of customers using food
stamps has doubled, creating additional swings. And as these anecdotal
tales mount up, they are interesting for at least two reasons. First,
and most obviously, they should remind us of the silent, dark underbelly
of economic pain that is stalking America’s current “recovery”. Most
notably, it seems that the financial fragility of the poorer section of
US society has risen sharply in recent years, as unemployment remains
high and real incomes and household wealth fall. (A revealing survey
published last week, for example, suggested that the wealth of Hispanic
and black families declined by 44 per cent and 31 per cent respectively
between 2007 and 2010.)

Measuring this financial fragility
– like measuring micro-level spending swings – is tough, since it is
not an issue that economists have traditionally tracked. But one in
seven Americans (about 50 million) are now thought to be living in
poverty and a similar number in “food insecure” households. Meanwhile,
six million are using food banks and 47 million are on food stamps. And
when the Brookings Institution tried to look at this fragility issue a
couple of years ago, by analysing how many households could find $2,000
in a hurry, it concluded that a quarter of families had no access to
ready, rainy-day funds. “Although financial fragility is more severe
among low-income households, a sizeable fraction of seemingly
middle-class Americans are also at risk,” the study concluded.

Make no mistake: Americans are worse off now than they were under Bush, and in turn worse off under Bush than they were under (Bill) Clinton. Althoug retailers are naturally wary of disclosing the timing of their sales based on paycheck cycles, it could be gathered anonymously by an impartial entity alike the Bureau of Economic Analysis. Summing it up merely solidifies an image of growing discontent as income and wealth slide and cause changes in consuming habits as a reflection.

Once massive Fed purchases of bonds are discontinued, who knows how far down this entire edifice of casino economy will fall. Certainly, there is no foundation of a real economy to fall back on.